EDITOR'S CHOICE -- SCOTT SUTTELL

Dividend hikes are hot, especially among Northeast Ohio companies

Blog Entry: February 13, 2012 11:58 AM | Author: SCOTT SUTTELL

Dividend increases are hot, and Northeast Ohio companies are taking part in the trend.

The Wall Street Journalreports that “more than two dozen companies have raised their dividend so far in February, according to S&P Indices, putting extra cash in investors' pockets before the yearly gatherings of public companies and their shareholders this spring.”

In just the first six weeks of this year, there have been 58 dividend increases or initiations, according to S&P. The Journal says that confirms “an annual trend whereby increases are announced during the start of the year. In 2010 and 2011, about one-fourth of the total raises fell before March.”

The newspaper reports that the indicated dividend yield for the S&P 500 “is near its highest point since June 2008, and is on track to surpass that level. The yield for the index has risen to 2.1% year-to-date, up from 1.9% in 2010, notable given the 7.5% increase in the index since the start of 2012.”

Diebold Inc. of Canton is one of the companies that announced a dividend increase this month, The Journal says. Unnamed in the Journal story, though, was Timken Co., which last Friday announced it was increasing its dividend by 15% to 23 cents per share. (And in a somewhat different category, Shiloh Industries Inc. of Valley City on Feb. 2 declared a special dividend of 50 cents per share.)

Companies “have unprecedented amounts of cash, and those that raised investor payouts benefited from the additional luster of increasing yields during a period of nearly unprecedented market volatility,” according to Paul Atkinson, director of North American equities for Aberdeen Asset Management.

“Since a flurry of cuts to dividends in 2009 — there were 78 — moves have been overwhelmingly positive: 2010 and 2011 each saw only five cuts in company dividends, and there haven't been any so far this year,” The Journal reports. “Last year, 342 companies increased their payouts, and in 2010 it was 256.”

“Others call it for what it is — environmental improvements that are long overdue,” Mr. Silverstein writes. “Indeed, utilities are now forced to choose whether to retrofit or to retire their old coal plants that do not have modern pollution controls. It's expensive to go back and fix those that are as old as 50, or ones that have outlived their expected days on this earth.”

So it's “cheaper to just shutter them, particularly now when the demand for electricity is down and when the price of natural gas is relatively cheap,” he adds. “FirstEnergy knows: The courts already directed it to fix an older plant at a cost of $1.8 billion. If it had to do that nine times over, that would break the bank.”

Roger Gale, CEO of GF Energy, a strategic consulting firm, tells Mr. Silverstein, “Coal-burning utilities used to fight tooth-and-nail. But they don't have the political clout they used to have. Now they are all in the acknowledgement stages. The plants that are 40 to 50 years old do not make sense and utilities are running those plants when they should not be.”

Raze the roof

Ohio is one of the focal points of this Bloomberg story that looks at how states plan to use their share of the national foreclosure settlement.

Some are using it to fill budget holes, while others will apply their money to key programs such as education. Ohio, which is receiving $97 million in its direct payment from last week's settlement, plans to allocate $75 million to demolish vacant and dilapidated homes dragging down the values of neighboring properties.

Attorney General Mike DeWine says at least 100,000 homes need to be demolished, and he's is establishing a program to match funds that cities and land banks allocate for tearing down houses.

Jim Rokakis, a former Cuyahoga County treasurer who now directs the Cleveland nonprofit Thriving Communities Institute, tells Bloomberg that using the settlement money for that purpose is appropriate because many homeowners are paying their mortgages and did nothing wrong, yet they face plummeting property values because of foreclosures around them.

“If you don't take these homes down, these neighborhoods will continue to lose what little value they have left, they will be less safe and there will be zero chance of those neighborhoods coming back,” Mr. Rokakis says. “You can't build the new American city until you take the old one down first.”

He's right about that. But it's worth keeping in mind this story, from MarketWatch.com, in which Sandra Pianalto, the president of the Federal Reserve Bank of Cleveland, notes that the challenge of vacant and abandoned housing in older industrial cities such as Cleveland will not be solved by a single program or one governmental or private organization.

“Instead, community development organizations must play an integral role in revitalizing neighborhoods,” Ms. Pianalto said in a Feb. 10 speech (the transcript is here) to a housing summit in Cleveland.

While razing low-value and abandoned properties can help nearby property values, it is not enough by itself and attention must be paid to the demand side of the market, MarketWatch.com notes.

"Demolishing low-value housing stock may not have a lasting or significant impact in increasing property values, unless there is a strong, ongoing interest in the land itself," Pianalto said.

Data dispute

The Washington Postreports that patients who flock to America's high-profile teaching hospitals seeking treatments for the most serious and complex diseases “are at heightened risk for preventable complications,” according to Medicare's first public evaluation of hospitals' records on patient safety.

“Georgetown University Medical Center, Washington Hospital Center, the Cleveland Clinic, Mount Sinai Hospital in New York City and Geisinger Medical Center in Danville, Pa., were among the institutions having substantially more complications than the average, according to data evaluated by the Medicare program,” The Post reports.

Medicare has begun publishing the rates of complications as a step toward using them to set payment rates for thousands of hospitals. But the newspaper notes that “leaders of a number of the nation's prestigious teaching hospitals are objecting to the approach, which has intensified a debate about the accuracy and fairness of a series of efforts by the government to judge — and ultimately pay — hospitals on the quality of their care.”

The Medicare data “show high rates of serious complications for elderly patients at three out of 10 major teaching hospitals, including some of the biggest institutions in Boston, Philadelphia, Los Angeles, Cleveland and Chicago,” The Post says. “Overall, teaching hospitals were nearly 10 times as likely as other hospitals to have high complication rates, according to a Kaiser Health News analysis of the data.”

Officials at many of the hospitals listed as having high rates of complications “say the measures are fundamentally skewed in ways that exaggerate problems at hospitals that treat many complicated cases or very sick patients,” the newspaper reports.

“Not all of these metrics are ready for prime time,” says George Blike, who oversees safety at Dartmouth Hitchcock Medical Center and Mary Hitchcock Memorial Hospital in Lebanon, N.H., which Medicare ranked as having a high rate of complications. “It's unfortunately going to create a lot of confusion for the public.”

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